What Is Performance Management?

Performance management is the process of reviewing and improving employees’ performance. When done effectively, it can help employees maximize their contribution in their roles. This supports the overall objectives of both their department and the wider organization.  

Some organizations manage performance through an appraisal process once a year. However, the most effective approach to performance management is to do so on an ongoing basis. This cycle should enable employees to reach their full potential by identifying any gaps in knowledge or skills.

Stages of Performance Management

The process of performance management usually consists of the following stages:

It’s important to start by reviewing the current “status quo” of an employee’s performance. This should be done as soon as the employee passes their probationary period.

At this stage we can consider: what is the individual doing well? What are they not doing so well? What are the gaps in their knowledge/skills?

Next, develop clear targets. This stage is key to making any significant improvements to performance, so the way you outline these targets is important. The “SMART” approach is a good way of establishing clear targets. It stands for: specific, measurable, achievable, realistic, and time-bound. 

It’s also important to give targets context and purpose. Research in 2018 by McKinsey found that when targets were linked to wider business goals, 46% of respondents reported effective performance management. When targets were not linked to goals, the number was only 16%.

This phase of performance management is arguably the most important. If there are no support mechanisms put in place, it is unlikely that anything will change. An example of support might be further training in specific skills, such as IT. You could also consider allocating a buddy to model best practices in how to approach a certain department task. 

Throughout the process, it’s important to conduct regular one-to-one reviews or “check-ins.” This enables both line managers and employees to assess and analyze performance on an ongoing basis. 

According to Forbes, regular one-to-ones will highlight any performance concerns in real time. Furthermore, this approach will help employees on track and aligned with the company’s overall goals and objectives.

You can also use these regular meetings to consider if the targets are realistic and if the support put in place is fit for purpose. You’ll also have the opportunity make any necessary small changes as and when required. This is far easier than than trying to address larger problems once a year in an appraisal meeting. 

As part of the regular check-ins, the delivery of constructive feedback is a crucial stage of the process. This can make or break any performance management process. When a line manager shies away from honest analysis, this prevents improvements to performance. Equally, where employees are resistant to open conversations, it is unlikely to result in any significant growth.

In addition, the way feedback is delivered is important to get right. When feedback is framed in a positive, empathetic way, employees will be more likely to be receptive to the points raised. Managers should not simply flag “bad” performance. Instead, they should give specific examples about how employees can improve. 

It’s important that employees are recognized for good performance. Without this, there will be little incentive for them to strive for improvement in their roles. Recognition could be in the form of financial incentives, other rewards such as an extra day off, or simply a verbal acknowledgment in the form of “Well done!” 

Is an Annual Performance Appraisal Necessary?

The process of performance management is not just a 6-stage policy—it’s a cycle. This cyclical approach supports ongoing employee development. It also allows for early intervention where employees are falling short of expected standards. 

Therefore, this approach to performance management doesn’t require an annual appraisal meeting. The benefit of discussing and addressing performance in an ongoing way means that, typically, there will not be anything new to address in an annual meeting that hasn’t already been raised throughout the year. 

If there is still an appetite for a formal appraisal meeting, this could be used to consolidate all of the discussions throughout the year and springboard into the next. 

Why Is Performance Management Important?

Performance management is key to success in any organization. Here’s why it should always be at the top of the agenda:

Turnover

Performance management has a direct impact on an organization’s bottom line. For example, if the sales team fails to hit its monthly targets, the company may not reach its overall goals as a result. This could have a detrimental effect on the company’s projected turnover and profit.

Productivity

Performance management directly supports employees’ productivity in their roles. Regular check-ins enable line managers and employees to address any obstacles to progress. As a result, the employee will be able to work with greater efficiency.

Employee engagement

When employees are supported in their roles to help them develop and progress, they feel valued. In turn, this can lead to improved levels of employee engagement and motivation.

Retention

When you help employees to develop their skills and flourish in their roles, their morale and job satisfaction will increase. This can have a beneficial effect on overall staff turnover, as happy employees tend to stay with the business.

Company culture

Performance management should facilitate the growth and development of the organization’s employees. This will nurture a positive workplace culture of high performance. The company will also build a reputation for valuing and investing in its workforce. Both of these things will make the organization more attractive to prospective talent.

Who Is Responsible for Performance Management?

Performance management should always be a two-way conversation. Line managers should spearhead the process, but the employee is ultimately accountable for their own performance. 

In addition, the HR function should have oversight of the performance management process. Their role is to ensure it is followed appropriately. Additionally, HR will be responsible for assisting with establishing support mechanisms. This might include booking in skills training, arranging shadowing or coaching, or even delivering some training where appropriate.

How To Approach Poor Performance in the Workplace

There may be occasions where an employee’s performance doesn’t improve, even with support. In these cases, line managers should always follow their organization’s performance management policy. This is often known as a “capability” policy. 

The line manager will usually be required to complete a performance improvement plan (PIP) with the individual. A PIP is a formal record, held on the employee’s personnel file. It details the specific areas of an employee’s performance that are presenting cause for concern. 

The PIP will also outline the targets the employee needs to reach to improve their performance and meet expectations in these areas. These targets are usually outlined through the SMART model or as key performance indicators (KPIs). A deadline would then be set for achieving these objectives. 

If the individual fails to make the necessary improvements, the organization should follow the next steps in its policy. This usually involves a formal meeting to consider the individual’s future with the business.

Best Practices for Effective Performance Management

Here are five simple ways to ensure that your company’s performance management process is effective:

Identify a consistent strategy or framework

To ensure effective performance management, you’ll need to start by outlining a framework. Consider how you will review, analyze, measure, monitor, and improve the workforce’s performance. This will form the basis of a policy or procedure that will help keep your approach consistent across the organization. 

However, you might need to vary your methods depending on the individual and where they sit in the organization. For example, for most employees, a holistic “360-degree review” approach is appropriate. This will help you to understand how an employee is performing in the eyes of the line manager but also their peers. With this method, line managers would be able to get a much more detailed understanding of their employee’s performance during stage 1, even if they don’t necessarily work side-by-side with them every day. 

An alternative framework could follow the “management by objectives” method. This puts a higher emphasis on stage 2 (developing targets). This would be useful in supporting those in more senior positions, who have more accountability for departmental and company objectives. 

Train managers

Once you develop a procedure, train your managers in how to interact positively and equitably with their teams. A McKinsey survey has found that the perception of fairness by employees is key to good performance management. If employees think their “mistakes” are being viewed more harshly than those of their peers, their motivation will be affected. This will also affect the overall impact of the performance management process.

Communicate regularly and consistently

Regular communication is paramount when considering the impact of performance management. If one-to-ones are regularly canceled, employees won’t have an up-to-date understanding of how well they are doing. It could also mean that poor performance could become more ingrained.

On the other hand, regular constructive feedback can feel more manageable and will be easier for the employee to absorb. Furthermore, negative feedback won’t be an unwelcome surprise if the employee will already has a gauge of how well they are doing. 

Use computer software

Nowadays, it isn’t necessary to maintain long and complicated spreadsheets recording progress. To support accurate record keeping, consider using software such as Connecteam’s task management app. This can help you keep an eye on activities set and achieved in real time to support the regular one-to-one meetings.

Onboard and offboard effectively

For performance management to be effective, It’s important to onboard new employees thoroughly. Employees need to have a clear understanding of their job responsibilities as part of the induction process. Having a strong grasp of expectations can later support the performance management process. 

Equally, it is important to use offboarding to gain an understanding of any challenges in specific roles. By doing this, these issues can be addressed before the next employee takes over the reins.

Conclusion

Performance management is an ongoing, cyclical process that should initiate a dialogue between line managers and employees. This continuing dialogue will support performance management by identifying challenges in real time. Your performance management policy and procedures should be followed consistently across the organization. 

Managing workplace performance will have beneficial effects on employee engagement and retention. This in turn could generate a tangible return on investment. However, bear in mind that employees won’t always engage effectively with the performance management process. In these situations, you may need to go down a formal route to address any areas of concern.